Reference no: EM132819488

Pancake Mama is considering buying a new oven to expand their pancakes business.

Oven type A can handle 300 pancakes an hour. The fixed costs associated with oven A are $18,000 and variable costs are $3.00 per piece of pancake.

Oven type B is larger and highly tailor-made and can handle 450 pancakes an hour. The fixed costs associated with oven B are $48,300 and variable costs are $1.20 per piece of pancake.

The pancakes are sold at $15 per piece.

a) What is the breakeven point in terms of piece of pancake for each oven?

b) If the owner expects to sell 9,000 pieces, which oven should he purchase?

c) If the owner expects to sell 20,000 pieces, which oven should he purchase?

d) Due to market situation, the selling price is now reduced to $13 per piece, then how are the breakeven points of oven A and B be affected? Comment with calculated numbers.

e) Oven type A and B are manufactured by two different suppliers. The owner of Pancake Mama talked with both suppliers for more details before purchasing. Below is the additional information given by them:

Oven type A supplier: We would provide some varieties in selection and customers would pick the components selection from our available list. We would help customers to assembly of what they selected. Our price and delivery lead time would be acceptable in the market.

Oven type B supplier: Our oven is manufactured under a specific method in a job shop. We would support what customers requested flexibly and that's why our product is much more expensive and longer production lead time is needed. There are a lot of different steps in production. However, most of our customers are happy with our highly tailor-made ovens.

If you were the operation manager, please comment what are the production process strategies under Oven type A and B? Justify your answer with comment (3 marks) and compare the characteristics of processes you selected.